As of March 28, 2016 (with a 1+ week delay):
Value on the Curve: (active CA trades):
- ** Buy the neglected non-quarterly meetings. I still like this, but this has moved away from the best levels.
- ** The relative curvature in the greens looks high compared to the slope. Oddly, even with the flies in the greens going lower, this is still true. I like this for rolldown.
- ** Look to establish long double fly positions at the back of the curve. Recession looks less likely and the Fed looks like they want to be more cautious about hiking.
- * Look for cheap recession/ease trades. The recent flatness of greens-golds gave us an opportunity to put on some overweighted conditional call steepeners, which should kick in on an ease.
Value on the Horizon: (“C” trades):
- * Look for “smart bearish” trades after payrolls . The Bloomberg chart on March payrolls spooked me.
- * Vol is low. Look again at some “cheap” ease trades in the next few weeks.
- * Find ways to fade negative rates. If the economic data holds but there is more panic, I’ll be ready.
- * A potential European banking crisis should cause libor to stay high. And Brexit.
- The Fed may ease intermeeting, but they won’t hike intermeeting. I like having longs in front of our shorts.
- There is upside to owning the year-end turn. The turn at 0.5bps seems low – especially as rates go higher. Wait for the curve to stabilize.
- Flies around the purples look high relatively. Still waiting for good levels.
- Consider the timing for a “half–hike.”